Technical Sentiment: Bearish

Key Takeaways

• AUD/JPY forms Lower High and Lower Low, inciting sellers to take on lower lowers;
• Price tumbled below a major price pivot zone at 96.50;
• Downside potential extends as low as 94.30/45.

Last week, the Australian Dollar failed to maintain a bullish swing configuration against the Yen, triggering a sell-off that could extend down to August lows.

Technical Analysis

When the technical landscape offers so many bearish signals as AUD/JPY has right now, traders must simply go with the flow if they want to reap any profits. With Yen starting a slight recovery across the board and Australian Dollar declining to fresh lows against a basket of currencies, AUD/JPY is following suit, turning extremely bearish from a technical perspective.

Late last week, as price seemed ready to recover following a bounce off 200 Simple Moving Average on the 4H timeframe, we observed a price action reversal at 97.92. This Lower High formed on the 61.8% Fibonacci retracement based on the High at 98.66 and the Low of 96.36, with additional confirmation from Stochastic which showed overbought conditions. This early sign of weakness was confirmed during the 9/23 European trading session, as price dipped below 96.36 (last week’s low).

AUD/JPY is likely to decline further in the coming days. 95.15 is the first intermediary support level within the previous range territory. 94.30/45 is the largest point of attraction for sellers, and price is likely to find major offers on the 200-Day Simple Moving Average.

While this bearish configuration of lower swing lows and lower swing highs remains valid, traders should focus solely on selling rallies within the newly formed bearish trend.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets